REFERENCE: Ref.01_09
On January 1,2008,Anderson Company purchased 40% of the voting common stock of Barney Company for $2,000,000,which approximated book value.During 2008,Barney paid dividends of $30,000 and reported a net loss of $70,000.
-What is the balance in the investment account on December 31,2008?

Question

Quizplus · Accepted Answer

The initial investment was $2,000,000 for 40% of the voting common stock, which means the total value of Barney Company was $5,000,000. Since Anderson Company owns 40%, their portion of the company is worth $2,000,000. 
The dividends paid by Barney Company do not affect the investment account, but the net loss does. Anderson Company must recognize its share of the loss, which is $28,000 (40% of $70,000). 
Therefore, the balance in the investment account on December 31, 2008, would be $1,960,000 ($2,000,000 initial investment - $28,000 share of the net loss).

REFERENCE: Ref.01_09 On January 1,2008,Anderson Company Purchased 40% of the Voting Common